Africa: Debt, Unfinished Business

Editor's Note

"In May 1998, 70,000 people from across Britain and the world took
part in one of the biggest demonstrations the UK had ever seen: a
human chain around the Group of 8 (G8) summit in Birmingham,
demanding an end to poor country debt. ... Significant amounts of
debt cancellation have been secured for the world's poorest
countries, making a real difference to the lives of millions of
people in poor countries. .. [But] not all that has been promised
has actually been delivered - and further, what was promised was
far from enough." - Jubilee Debt Campaign

As G8 leaders prepare to meet in Japan next week, African
development, along with global issues affecting Africa, such as
climate change and the food crisis, will be on the agenda. But
there are serious doubts whether the group of rich countries will
deliver on their 2005 pledge to raise annual levels of aid to
Africa by at least $25 billion (see http://tinyurl.com/6q4j65) And
a new report by the UK's Jubilee Debt Campaign notes that the
promises of action on debt cancellation are also still outstanding.

Unfinished business: Ten years of dropping the debt

Jubilee Debt Campaign is part of a global movement working for
full cancellation of unjust and unpayable poor country debts, by
fair and transparent means. It is a UK coalition of around 90
national organisations and 100 local and regional groups, as well
as thousands of individuals.

Introduction and summary

In May 1998, 70,000 people from across Britain and the world took
part in one of the biggest demonstrations the UK had ever seen: a
human chain around the Group of 8 (G8) summit in Birmingham,
demanding an end to poor country debt.

It was a day that changed the world for millions of people. The
issue of debt was catapulted to the top of the G8 agenda, leading
to large commitments for debt cancellation. It was a turning
point in the ability of ordinary people directly to influence the
policies of global financial institutions - and to move towards
justice on behalf of the world's poor.

But it was not enough. Ten years later, we look back ...to assess
just how far we have - and haven't - come. ...

Continued lobbying and active campaigner engagement around the
world over the past decade are cause for celebration; the report
highlights some of the key moments on the journey, as well as the
main debt deals that have been agreed. Significant amounts of
debt cancellation have been secured for the world's poorest
countries, making a real difference to the lives of millions of
people in poor countries. The impact of debt cancellation should
not be ignored: it is a very effective means of tackling poverty.
But the results remain woefully inadequate. Not all that has been
promised has actually been delivered - and further, what was
promised was far from enough.

There are fundamental problems with the debt relief process: the
conditions that have been attached and the delays, stigma and
loss of control faced by countries receiving debt cancellation.

Even worse, far too little debt has been cancelled for far too
few countries so far. Poor countries are still shelling out more
than $100 million a day in debt payments; and for every $1 they
receive from rich countries in aid, the developing world still
returns $5 in debt service payments.

Jubilee Debt Campaign estimates that over $400 billion of debt
must be cancelled for around 100 countries, simply to allow them
to meet their people's basic needs. The schemes established for
debt cancellation have so far wiped out around $88 billion. Put
in simple and very approximate terms, around a fifth of the debt
cancellation that would be required simply to meet the basic
needs and rights of citizens in poor countries has so far been
delivered. On top of this, much of the debt is unjust,
originating in irresponsible lending decisions. This debt should
be cancelled outright, on the grounds of illegitimacy.

Our demand is the same one that united 70,000 people in
Birmingham in 1998. We call for an end to unpayable and unjust
debt. We demand:

The cancellation of the unpayable debts - over $400 billion for
around 100 poor countries.

A new definition of 'sustainable' debts, in terms of human
need, to be used as the basis for cancelling unpayable debts.

The auditing of poor country debts and the cancellation of
those that have resulted from irresponsible lending.

The establishment of a fair and transparent process for working
out debt disputes.

The participation in debt cancellation processes of those
creditors who have been least engaged in the process so far,
especially commercial creditors; this would prevent 'vulture
fund' activity.

An end to the imposition of economic policy conditions attached
to debt relief.

The creation and implementation of enforceable criteria for
responsible lending.

It's not a matter of charity. It's a matter of justice.

...

From Chapter 1: A Brief History of the Debt Crisis

The situation today

In the early 1980s, the interest rates on the loans tripled and
even quadrupled, causing the debt crisis. While these interest
rates have since come down, developing countries continue to be
burdened with huge debts which many cannot afford to repay. The
total external debt stock (that is, owed to creditors outside the
country) of all developing countries in 2005 was $2.74 trillion,
with some $514 billion paid back to the rich world that year
alone. This consists of: multilateral debt, owed to institutions
like the World Bank and regional banks; bilateral debt owed to
other countries; and commercial debt owed to banks and private
companies.

To repay this debt, poor countries have to forego crucial
spending to meet their people's basic needs and to reduce
poverty. Debt is one of the main barriers to development in poor
countries today. Moreover, successive generations are still
paying off odious and illegitimate debts - incurred by loans made
to oppressive regimes; to known corrupt officials; for obviously
useless or overpriced projects; or granted on unacceptable terms,
such as usurious interest rates. These should be cancelled on the
basis of their illegitimacy.

Debt relief schemes impose conditions on countries that wish to
benefit from them, often including a host of economic policy
conditions, such as privatisations of state-run enterprises,
opening of markets, and drastic public spending cuts. These
reforms often harm the poorest people, for example cutting their
wages and reducing their access to basic services. They also
undermine democracy: if policies are determined in Washington,
local parliaments become powerless, and political engagement
becomes meaningless.
...

From Chapter 2 The debt problem unpacked

There may well be good reasons for nations to take out loans
responsibly: for example, to invest in the creation of industry,
or to provide infrastructure, like roads and electricity, to
support the development of local businesses. ... [we are] not
calling for an end to all borrowing and lending. We are calling
for an end to those debts which are unpayable or unjust. ...

Debt exacerbates global poverty and inequality

In paying back over $500 billion in external debt service per
year, governments in the developing world are forced to
prioritise debt payments over their people's basic needs,
regardless of the levels of poverty in the country, the need for
investment in essential services and infrastructure, or problems
relating to recent war or disaster. ...

When poor country governments service huge debt burdens, they
often do so with funds urgently needed to provide basic education
and healthcare for their citizens. For example, sub-Saharan
Africa has 25% of the world's disease burden, but only 1.3% of
the trained health workforce; altogether it paid out more than
$23 billion in debt payments in 2005. ...

Debts also contribute to global inequality; for example, as
stated above, for every $1 of aid that poor countries receive,
they pay back $5 in debt repayments. As long as North-South
financial flows are skewed against poor countries in this way,
the gap between rich and poor will only continue to grow.

Debt leads to human rights violations

It is a principle of human rights and of common sense that a
government should ensure its people receive their basic needs,
such as healthcare, safe drinking water, education, food, shelter
and those other rights laid out in the Universal Declaration of
Human Rights. Governments should not be forced to forego
providing these basic needs in order to service debt owed to rich
countries. Debts whose repayment has such consequences are
'unpayable' and should be written off.

Unjust debts

A large proportion of poor country debt is unjust or
illegitimate; resulting from loans made irresponsibly, for which
the lender should be held liable for the outcome. 'Illegitimate
debt' includes: loans made to oppressive regimes; to known
corrupt officials; for obviously useless or overpriced projects;
or granted on unacceptable terms, such as usurious interest
rates. ...

Unfair process

When it comes to resolving debt disputes, it is clear who holds
all the power, and it's not the debtor countries. Imagine that
you have started a business and have unfortunately gone bankrupt;
you cannot pay some of your outstanding bills without denying
your children food, water and medical care for years on end. But
you cannot go to court to declare bankruptcy because no court
exists. So you call up some of your creditors to tell them the
situation. In response, you are called to a private room where
all your creditors have gathered. You wait politely outside while
they discuss their common position. Then you are called in, the
doors close and the negotiations begin. There are twenty people
in the room: nineteen representing your various creditors, and
you. You're not allowed to tell anyone about the inner workings
of the deal that is worked out. How likely are you to receive a
fair deal?

This is a fair approximation of what it has traditionally been
like for poor, heavily indebted countries to negotiate a
reduction in their unpayable debts. ...

Future unpayable and unjust debt

While it is crucial to cancel current debts, it is equally
important to make sure that a similar debt crisis will not occur
in the future. ... even some of those countries that have had
some debt cancellation through HIPC are now once again facing
unpayable debt burdens. ...

From Chapter 3 - The Jubilee movement so far

The world's biggest petition

The world's biggest petition gathered 24,319,181 signatures from
166 countries by the time it was completed. Those who gave their
support were signing up to the following:

We, the undersigned, believe that the start of the new millennium
should be a time to give hope to the impoverished people of the
world.

To make a fresh start, we believe it right to put behind us the
mistakes made by both lenders and borrowers, and to cancel the
backlog of unpayable debts of the most impoverished nations.

We call upon the leaders of lending nations to write off these
debts by the year 2000. We ask them to take effective steps to
prevent such high levels of debt building up again. We look for a
new beginning to celebrate the millennium.

Top countries in each of the main continents by number of
signatories:
USA 5,328,856
UK 2,961,768
Bangladesh 2,175,895
Peru 1,850,060
Australia 457,620
Zambia 306,512

2001 and beyond

After 2000, the 'millennium moment' for the debt campaign had of
course passed but, despite its achievements, it was clear that
the debt issue was not resolved. Responding in part to the desire
of grassroots supporters to carry on, and after several
consultative gatherings, the debt campaign was re-launched as
Jubilee Debt Campaign in March 2001. ... Jubilee Debt Campaign
has continued to press for the cancellation of unpayable and
unjust debt.

From Chapter 4 - Promises made, promises kept?

Debt relief is a highly effective tool in combating poverty - the
Commission for Africa, for example, describes it as highly
efficient when compared to other kinds of aid - because it
represents in essence direct budget support. However, it
shouldn't be used as an excuse for donor countries to covertly
slash their commitments to other important forms of development
aid.

Unfortunately, that's exactly what often happens. When it comes
to calculating and reporting official aid to poorer countries,
donors have become very creative accountants, making themselves
seem more generous than they really are. ...

While it can be argued that, as an effective poverty reduction
tool, debt cancellation should be defined as aid, this is
problematic if it conceals how much finance is actually going to
developing countries to help tackle poverty. Resources to fund
debt cancellation should be separately identified from other
forms of aid, and countries should not count money for debt
cancellation towards the agreed target of giving 0.7% of their
Gross National Income (GNI) to aid. ...

Jubilee Debt Campaign, along with hundreds of partner
organisations, calls for donor countries to stick to their
publicly announced commitments; these include making debt
cancellation additional to other forms of aid they have pledged.
This means, as was promised at the FfD conference in Monterrey in
2002, that debt relief should not be included in the aid figures
pledged to reach the UN commitment of 0.7% GDP.

From Chapter 5 - Flawed processes

The debt cancellation that has been delivered has made a real
difference on the ground, as we will explore below. But ... the
vast majority of countries in the developing world still have
huge debt burdens which prevent them from spending enough money
on strategies for battling poverty.

The problems lie with how debt relief is currently structured.
Unfair, arduous conditions and delays in the HIPC and MDRI
initiatives prevent countries from quickly receiving desperately
needed relief, thus costing lives in the process. Furthermore,
many needy countries are excluded from the process altogether.

Unfair conditions

Conditions attached to debt relief are similar to those attached
to loans by the IMF and World Bank; these conditions have played
a central role in development assistance for many years. They are
based on a set of policies known as neoliberalism, or the
'Washington Consensus', which includes: fiscal discipline, tax
reform, liberalising interest rates, trade liberalisation,
privatisation and deregulation.Many of these prescriptions have
been discredited but beyond this, the main concern of civil
society and developing country governments is that these
countries should not be strait-jacketed into any policy formula,
but should rather be able to determine their own course of
development.

Countries going through HIPC now have between ten and twenty
different 'trigger conditions' they must meet lest the IMF
declare them 'off-track' and therefore ineligible for debt
cancellation. These conditions often hurt the poor and fail to
secure growth or reduce poverty.

...

Ironically, such measures involve strict restrictions on spending
for basic services such as infrastructure, healthcare and
education - and this is for the countries and populations that
most desperately need these services. ...

And indeed, such restrictions can have absurd and tragic
outcomes. For example, the IMF refused to allow Zambia to employ
more healthcare workers even when the Canadian government offered
to foot the bill for five years, because to do so would have
meant exceeding IMF spending ceilings. Similarly, when a drought
in Malawi caused food shortages, its government was forced to
borrow money from domestic banks to prevent its citizens from
dying. The IMF, however, viewed such a measure as irresponsible
and declared Malawi 'off-track' from HIPC. ...

...

Inclusion and exclusion

Perhaps the most pressing problem with HIPC is that it leaves
many highly needy countries out of debt cancellation - often for
arbitrary reasons. ... we estimate that more than $400 billion of
debt cancellation is still needed for around 100 countries.

Kenya is one of the many countries left out in the cold. Kenya
does not qualify for debt cancellation through HIPC and MDRI
because, according to criteria set by the World Bank, Kenya's
debt is 'sustainable'. This is despite the fact that, in 2005/6,
46.1% of Kenyans had levels of consumption that do not meet basic
food and non-food needs, even according to the World Bank's own
standards for such measures. The Government of Kenya spends more
each year on debt servicing ($236 million in 2005) than it can
afford to spend on essential services, or receives in aid for
tackling hunger and extreme poverty.

From Chapter 6 - Debt relief is working

Changing lives: the effects of debt cancellation

Despite the problems and limitations of the debt cancellation
process, debt relief has had a hugely positive impact. There is
clear and mounting evidence that debt cancellation is among the
most effective forms of financing poverty reduction for the
developing world. While detractors had originally argued that
money from loans cancelled would only line the pockets of corrupt
regimes, facts on the ground show just the opposite. In fact,
some of the very same multilateral institutions that initially
resisted the idea are now agreeing that the initiative has shown
real results.

According to the World Bank, countries that received multilateral
debt cancellation increased their social spending by an average
of 45% between 1999 and 2003, meaning that funds for essential
services like education and healthcare have increased
dramatically. ...

Increasing school enrolment: In Uganda, debt cancellation enabled
the government to abolish fees for primary school. Not only did
this cause a doubling of school enrolments, it also drastically
decreased inequality between girls and boys. Before debt relief,
there were 20% fewer girls than boys in school, now numbers are
almost even.

Uganda was not alone. In Tanzania, for example, the abolition of
school fees has seen the number of children enrolled in primary
school rise to 7.5 million in 2005, from 4.4 million in 2000.

Improving healthcare: Bolivia and Mauritania both directed funds
from debt cancellation towards improving healthcare. Before debt
relief, only around 40% of births in each country were attended
by a health professional. Now it is nearly 60% in Mauritania and
70% in Bolivia, thus greatly improving infant and maternal
mortality rates.

Recruiting teachers: Malawi has used funds from debt cancellation
to train nearly 4,000 new teachers each year. Benin has used it
to recruit teachers for vacant posts in rural areas, and Mali to
pay 5,000 community teachers.

... In fact, a survey of ten African countries showed that
spending on education went up 40% overall in just four years
after getting debt cancellation.

...

Enhancing democracy and accountability

Popular opinion in the West often worries that corruption in poor
countries means that all aid money will go to waste. Happily (and
ironically), the reality with debt cancellation is quite the
opposite. Not only is debt cancellation clearly linked with
dramatic increases of direct provision of much needed basic
services to the poor; more and more, it is also shown to boost
the participation of the poor and more marginalised communities
in the democratic process of their countries, thus improving the
accountability of developing country governments. ...

While donor governments raise concerns about current corruption,
they do not make the link with their own past corrupt lending, or
take responsibility for this. Dealing with corruption now, also
means redressing past acts of corruption. It is legitimate for
taxpayers in the North to demand that development aid and loans
are well spent in poor nations, but it is also legitimate for
taxpayers in the South to ask why they should pay the debt
service on corrupt loans that Northern governments and banks made
in the past. ...

From Chapter 7 - Next stages on the journey

This report shows how much has been achieved in the past ten
years. About $88 billion of poor country debt has been cancelled
through international schemes, making a real difference to the
lives of millions of people in poor countries. But we still need
much wider and deeper debt cancellation, based firstly on a
revised understanding of what a sustainable level of debt would
be, and secondly on an acceptance that some debts should be
cancelled on the basis of their illegitimacy. We also need a
radical overhaul of the process by which debts are cancelled.

...

More debt cancellation for more countries

Based on human need, as well as legitimacy, many more countries
should have their debts cancelled. Campaigners are clear that
much wider debt cancellation is necessary for a lasting solution
to the crisis to be reached.

A numerical expression of this can only ever be an estimate, but
we calculate, based on New Economics Foundation (NEF) research,
that around 100 countries still need somewhere in the region of
$400 billion of their debts cancelled if they are to meet their
people's basic needs (see Appendix 3 for details of this
approach). This is without taking into account those debts that
should be cancelled outright on the basis of their illegitimacy.
As was noted earlier, some $500 billion in debts can be
attributed to dictators, and could be defined as 'illegitimate'
debts. ...

A sustainability revolution

Civil society groups have argued for years for a different
measure of sustainability to be used as the criterion for debt
cancellation. Sustainable levels of debt payments should be those
allowing a population's human rights and basic needs - such as
food, shelter, health and education - to be protected, and not
undermined by their country's debt payments.

In contrast, in calculating a 'sustainable' level of debt, and
thus who qualifies for debt relief, currently the international
financial institutions and creditor clubs assess poor countries
in purely financial terms; the purpose being to reduce debts to a
level that each country can just afford to repay. This takes no
account of other demands on public funds, or of the poverty of
the people. The aim is to protect the creditors, and to maintain
some participation of the country within the global economy, such
as providing an opportunity for international investing and
trading.

Establishing a fair and transparent process

The current process of debt cancellation must be urgently and
radically reformed. In its place, an open, independent,
impartial, transparent and comprehensive process should be
developed to resolve debt crises and disputes. This would take
account of both the origin and the impact of the debts, and would
give equal treatment to both debtors and creditors, acknowledging
their coresponsibility for the creation of the debts. ...

Common elements of such proposals include the following:

An impartial and independent panel would arbitrate the dispute.

The debtor country's need for financial resources to fulfil the
basic needs of its population would provide the guiding
principle.

Equal treatment would be given to debtors and creditors, public
and private.

The process would be transparent and would involve civil
society.

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